Like PFC, REC, banks to ask discoms to meet performance parameters for availing loans

• The new guidelines would require banks to impose a set of conditions in the form of performance parameters for discoms when the latter approach these institutions for loans
• The conditions would be the same as the ones put in place by state-run PFC and REC Limited for discoms to avail loans under the liquidity infusion scheme

New Delhi: To push power distribution companies (discoms) to implement reforms, the government is mulling further tightening of lending norms, said Power Secretary Alok Kumar. The new guidelines would require public sector banks and financial institutions to impose a set of conditions in the form of performance parameters for discoms when the latter approach these institutions for loans. The conditions would be the same as the ones put in place by state-run Power Finance Corporation (PFC) and REC Limited for discoms to avail loans under the liquidity infusion scheme.

Addressing the ET Energy Leadership Summit on Thursday, Kumar said, "State-run PFC and REC have put in place additional conditions for discoms to avail loans from the two PSUs. And the government is now working to extend these conditions to all financial institutions, including banks. So, when discoms approach PFC, REC or any public sector bank, they will be expected to meet those additional norms. Our strategy to push discoms to implement reforms is multi-pronged." 

'Improvement in discoms' performance don't meet our expectations fully'

While acknowledging that improvement is visible in key parameters related to discoms' viability in the wake of the liquidity infusion scheme, the Power Secretary added that the improvement has not met the government's expectations fully. "We have also seen improvement in the key parameters of discoms' viability in terms of their operational losses, the gap in average cost of supply and average realisable revenue, annual losses and payments to gencos. But let me also admit that the improvement in these parameters do not meet our expectations fully," said Kumar.

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The Secretary said that one of the key challenges that remains before the government is to improve the financial viability of discoms. "Because larger penetration of renewable energy depends on the viability of discoms as renewable energy investors are looking at certainty of payments. Viability of discoms is also important to sustain the reliability of supply because discoms have to continuously make investments in distribution network," said Kumar.

New reforms scheme, tariff policy on anvil

In order to address the problem of financial viability of discoms, the government is in the final stages of launching the new distribution reforms scheme and is also ready to roll out the new tariff policy, said the Secretary. "We are now in the final stages of launching our new distribution reforms scheme, which has been developed after detailed stakeholder consultation. Our new tariff policy has been finalised and we may get an approval from the Cabinet any day and get it notified. There is more focus on consumers and pressure on discoms to prove their efficiency," said Kumar.

"The recommendation of the Finance Commission for permitting states to borrow half-a-percent of their state GDP every year subject to them enacting reforms in discoms has now been formally launched by the Ministry of Finance. All the major key reform areas like improving operational efficiency, ensuring government payments, ensuring payment of subsidies, collection of cross-subsidies, deeper penetration of smart meters, consumer grievances, better corporate governance, are included in the new scheme," the Secretary said. He added that the government is also working on reducing the burden of cross-subsidy so that competitively priced power can be supplied to industries.

'Private sector participation in transmission reduced tariffs by 30%'

Commenting on the changes brought about by the participation of the private sector in the power sector, Kumar said, "What is most notable is that the private sector's participation in transmission has brought down the tariffs by about more than 30 percent."

"We have been able to build a robust transmission grid in India which can transmit power from any corner of the country to any other corner. The grid is the backbone for our power supply reliability. And it throws huge opportunities for market development. It has made it possible for us to develop one nation, one electricity market," said Kumar.

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